Is the market always right for energy security?

The last few decades have seen the ascendancy of deregulation and privatisation as key policy tenets in many western countries – with the UK in the Thatcher era being one of the most striking examples. The Labour government that followed didn’t exactly rush to return to a more interventionist approach either – the debate is considered mostly over, the odd financial crisis aside.

It’s quite well established now that policy measures are important, however, to tackle climate change. Putting a price on carbon to represent the externalities of climate change costs are an obvious one. And the ‘valley of death’ for renewable energy sources is well-known: the challenge of getting up to scale is too huge for most venture-capital levels of funding.

But a report by former UK energy minister Malcolm Wicks says leaving it up to the market is not enough, with regards to energy security, either. The government, Wicks argues, needs to be far more involved in ensuring the country’s energy future is stable, and planned interventions so far, including the carbon strategy released last month, do not go far enough, he says.

The report says government intervention should be boosted on almost every front: nuclear targets should be increased, North Sea production should be reviewed, more gas storage should be considered, and ‘all measures at its disposal’ should be employed to increase efficiency. Furthermore, renewables might need more help – and Wicks was particularly keen on tidal and wave energy, noting a 2006 study that estimated it could provide 20 per cent of the country’s energy.

Here are the recommendations contained for domestic policy within the 130-page report. We’ve bolded the most interesting ones:

- The Government must take a bold lead on energy efficiency and energy conservation by taking symbolic action itself at a substantial scale.

The Government should employ all measures at its disposal to promote
greater energy efficiency in the commercial sector.

- An aspiration that nuclear should provide some 35-40 per cent of our
electricity beyond 2030 should be considered by Government.

-  The Government should take the opportunity to make a strong and clear statement on the need for new nuclear power plants in the forthcoming National Policy Statement for Nuclear.

- The Government needs to consider whether further policy instruments that direct investment in capacity towards non-fossil fuel power generation, including wind, tidal and wave are required.

- The Government should continue to support the development and deployment of alternative transport technologies, building on the very welcome programmes already announced.

- The UK has real potential as a major technology innovator both in design and engineering technologies which should enable us to play a leading role in new vehicle development. The Government has an
important catalytic role, including in fostering international collaboration and working with major car makers who manufacture here to centre development of new technologies in the UK.

- The Government should takes steps to increase the UK public and private sector spending on R&D in line with recommendations in the Stern report and current Commission/EU proposals to ensure it can
meet the challenges of the climate change agenda.

- The UK should remain at the forefront in developing CCS technology and demonstration.

- The UK should develop its own economically viable coal resources where it is environmentally acceptable to do so, including through the use of innovative technologies.

- The Government in recognising the importance for our energy security challenges in its decision-making on regulations, tax treatment and the like.

- The Government should explore the potential for greater import capacity of clean energy from other states, for energy security as well as climate reasons.

- The Government should keep the tax treatment of profits from UKCS production under continuous review, to ensure investment is maintained at the level which is necessary properly to realise maximum potential in the North Sea, as a key contribution to energy security.

- The Government should continue to do everything it can to develop the West of Shetland province, and stand ready to play a catalytic role in bringing together the interests necessary for its further development,
including an adequate gas transportation capacity.

- The Government should support companies looking to conclude long term supply agreements with overseas suppliers.

- The Government should require firms supplying the UK gas market to provide sufficient information on their contracted supply levels so that it has the contextual information to make soundly-based policy decisions.

- The Government should carefully consider the outcomes of the examination of the supplier obligation in Ofgem assess whether it provides sufficient assurance of secure supplies.

- The Government should keep under review the possibility of further measures to enhance levels of gas storage, should commercial storage developments fail to materialise at the scale anticipated.

- The Government should identify meaningful indicators which will enable it to establish whether the international energy picture is improving or worsening, with respect to UK and EU energy security in
efforts to diversify the UK.

- The Government should establish a process for annual review of this analytical material and other reporting, to establish clear cross departmental agreement on priorities for action, and make recommendations for structured Ministerial engagement including, where appropriate, Prime Ministerial and Royal engagement, including identification of the priorities for Ministerial visits in support of energy security objectives. This review should be chaired by DECC and include FCO, Cabinet Office, HMT, DfID, ECGD and the intelligence agencies,
and others as necessary.

- Within the context of the National Security Strategy, the significance of energy security as a source of risk in relation to the other key drivers of national security should be assessed regularly. The right forum to
consider this issue appears to be the Ministerial Committee on National Security, International Relations and Development, taking advice from the Sub-Committee on Environment and Energy.

- The Government should examine the case for a new Office for International Energy Security, bringing together more closely those working in different Government Departments on these issues.

Related links:

Call for more intervention on energy (FT, 04/08/09)

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